SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to ______________________
Commission file number 0-16125
FASTENAL COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Class Outstanding at October 15, 1999
- ---------------------------- -------------------------------
Common Stock, $.01 par value 37,938,688
FASTENAL COMPANY
INDEX
Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998
1
Consolidated Statements of Earnings for the nine months and three months ended
September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the nine months ended September 30,
1999 and 1998 3
Notes to Consolidated Financial Statements 4
Management's discussion and analysis of financial condition and results of
operations 5-11
Quantitative and qualitative disclosures about market risk 11
Part II Other Information:
Exhibits and reports on Form 8-K 11
- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
Assets 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 24,262,000 2,086,000
Trade accounts receivable, net of allowance for doubtful
accounts of $1,200,000 and $740,000, respectively 90,751,000 68,498,000
Inventories 99,344,000 93,734,000
Deferred income tax asset 2,312,000 2,312,000
Other current assets 5,818,000 6,637,000
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 222,487,000 173,267,000
Marketable securities 215,000 265,000
Property and equipment, less accumulated depreciation 78,733,000 74,212,000
Other assets, less accumulated amortization 3,386,000 3,490,000
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 304,821,000 251,234,000
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 19,952,000 17,411,000
Notes payable 0 4,055,000
Accrued expenses 12,695,000 8,999,000
Income taxes payable 3,408,000 343,000
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 36,055,000 30,808,000
- --------------------------------------------------------------------------------------------------------------------------
Deferred income tax liability 2,780,000 2,780,000
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 0 0
Common stock, 50,000,000 shares authorized
37,938,688 shares issued and outstanding 379,000 379,000
Additional paid-in capital 4,424,000 4,424,000
Retained earnings 261,665,000 213,615,000
Accumulated other comprehensive loss (482,000) (772,000)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 265,986,000 217,646,000
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 304,821,000 251,234,000
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
--------------------------------------- --------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 453,884,000 374,483,000 159,359,000 131,349,000
Cost of sales 215,814,000 176,435,000 76,112,000 61,834,000
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 238,070,000 198,048,000 83,247,000 69,515,000
Operating and administrative
expenses 157,970,000 131,422,000 55,739,000 46,400,000
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 80,100,000 66,626,000 27,508,000 23,115,000
Other income (expense):
Interest income 309,000 4,000 199,000 0
Interest expense (57,000) (905,000) 0 (308,000)
Gain on disposal of property
and equipment 294,000 43,000 101,000 11,000
- --------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 546,000 (858,000) 300,000 (297,000)
- --------------------------------------------------------------------------------------------------------------------------------
Earnings before
income taxes 80,646,000 65,768,000 27,808,000 22,818,000
Income tax expense 31,079,000 25,333,000 10,717,000 8,785,000
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 49,567,000 40,435,000 17,091,000 14,033,000
- --------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share $ 1.31 1.07 .45 .37
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding 37,938,688 37,938,688 37,938,688 37,938,688
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
Septmeber 30,
----------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 49,567,000 40,435,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 9,112,000 7,700,000
Gain on disposal of property and equipment (294,000) (43,000)
Amortization of goodwill and non-compete 165,000 165,000
Changes in operating assets and liabilities:
Trade accounts receivable (22,253,000) (14,120,000)
Inventories (5,610,000) (12,304,000)
Other current assets 819,000 (811,000)
Accounts payable 2,541,000 (1,127,000)
Accrued expenses 3,696,000 2,341,000
Income taxes payable 3,065,000 1,477,000
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 40,808,000 23,713,000
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions of property and equipment, net (23,219,000) (25,298,000)
Proceeds from sale of property and equipment 9,880,000 7,627,000
Translation adjustment 290,000 (365,000)
Proceeds from sale of marketable securities 50,000 0
Increase in other assets (61,000) (89,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (13,060,000) (18,125,000)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in notes payable (4,055,000) (3,570,000)
Payment of dividends (1,517,000) (759,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (5,572,000) (4,329,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and
cash equivalents 22,176,000 1,259,000
Cash and cash equivalents at beginning of period 2,086,000 386,000
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 24,262,000 1,645,000
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 27,381,000 23,856,000
- ------------------------------------------------------------------------------------------------------------------------------
Interest $ 87,000 955,000
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Fastenal Company
and subsidiaries (collectively referred to as the Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, there has been no material change in the information disclosed in the
notes to consolidated financial statements included in the Company's
consolidated financial statements as of and for the year ended December 31,
1998. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
- 5 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements.
First nine months of 1999 vs. 1998
- ----------------------------------
Net sales for the first nine months of 1999 were $453,884,000, an increase of
21.2% over net sales of $374,483,000 for the comparable period in 1998. The
increase came primarily from higher unit sales as unit prices experienced some
deflation in certain products. Higher unit sales resulted primarily from
increases in sales at existing store sites. The increases in sales at existing
store sites are due primarily to increases in market share and, to a lesser
extent, the introduction of new product lines at the existing sites. See
discussion below related to the impact of hurricane Floyd. Sites opened in 1997
or earlier had average sales increases of 14.5%. The remainder of the 21.2%
sales growth came from store sites opened in 1998 and during the first nine
months of 1999. Twenty-four new store sites were added from October 1998 through
September 1999.
During the first nine months of 1999, 23 new sites were opened; all sites opened
as Fastenal(R) stores. The total sites at the end of the third quarter were 788,
which consisted of 729 Fastenal(R) stores and 59 satellite stores.
The following table indicates product lines added to the original Fastenal(R)
product line, the year of introduction, and the approximate percentage of total
net sales related to each product line during the nine months ended September
30, 1999 and 1998:
PRODUCT LINE INTRODUCED 1999 1998
------------------------------------------- ------------------- -------------- ---------------
Tools 1993 12.6% 12.0%/1/
------------------------------------------- ------------------- -------------- ---------------
Cutting tools 1996 5.0% 4.9%
------------------------------------------- ------------------- -------------- ---------------
Hydraulics & pneumatics 1996 3.9% 3.4%
------------------------------------------- ------------------- -------------- ---------------
Material handling 1996 5.8% 5.0%/1/
------------------------------------------- ------------------- -------------- ---------------
Janitorial supplies 1996 1.7% 1.5%/1/
------------------------------------------- ------------------- -------------- ---------------
Electrical supplies 1997 1.1% */1/
------------------------------------------- ------------------- -------------- ---------------
Welding supplies 1997 * *
------------------------------------------- ------------------- -------------- ---------------
Safety supplies 1999 * */1/
------------------------------------------- ------------------- -------------- ---------------
* Less than 1% of net sales
/1/ During the second quarter of 1999, a safety supplies product line was
added. This product line consists of product formerly included in the
Tools product line and, to a lesser extent, the Material handling,
Janitorial supplies, and Electrical supplies product lines. Restated
comparable numbers were not readily available.
- 6 -
ITEM 2. (continued)
Net earnings for the first nine months of 1999 were $49,567,000, an increase of
22.6% over net earnings of $40,435,000 for the comparable period in 1998.
Operating income grew 20.2% from 1998 to 1999, a rate of growth less than the
net sales rate of growth. The slower rate of growth in operating income occurred
primarily because costs of sales increased at a 22.3% rate, a rate greater than
the net sales growth rate. The impact of the lower gross profit was partially
offset because operating expenses increased at a 20.2% rate, a rate less then
the net sales growth rate. Net earnings increased at a 22.6% rate, a rate
greater than the net sales growth rate, primarily because the elimination of
outstanding debt caused the Company to have net interest income in 1999 versus
net interest expense in 1998. The Company site personnel totaled 3,471 on
September 30, 1999, an increase of 14.7% over the 3,025 on December 31, 1998.
The first nine months of 1999 showed a continuation of the lower sales growth
rate experienced in the second half of 1998. This weakness relates to a slowdown
in the manufacturing activity of customers we sell to in the U.S. and Canada.
The weakness also reflects the impact of some deflation in the prices received
for the sale of certain products. The impacts related specifically to the third
quarter are discussed below.
As was discussed in the Company's Form 10-Q for the quarter ended June 30,
1999, the Company estimated at the time that it would open approximately 50
store sites in 1999. The Company currently expects to open approximately 20
store sites in the fourth quarter of 1999. This will bring the 1999 total to
approximately 43 store sites. The Company will continue to modify the planned
openings throughout the year based on current results and the strength of the
industrial marketplace.
Three months ended September 30, 1999 vs. 1998
- ----------------------------------------------
Net sales for the three months ended September 30, 1999 were $159,359,000, an
increase of 21.3% over net sales of $131,349,000 for the comparable period in
1998. The increase came primarily from higher unit sales as unit prices
experienced some deflation in certain products. Higher unit sales resulted
primarily from increases in sales at existing store sites. The increases in
sales at existing store sites are due primarily to increases in market share
and, to a lesser extent, the introduction of new product lines at the existing
sites. Sites opened in 1997 or earlier had average sales increases of 16.0%. The
remainder of the 21.3% sales growth came from store sites opened in 1998 and
during the first nine months of 1999.
During September 1999, the Company was impacted by several external factors.
Hurricane Floyd reduced net sales growth in the month of September by
approximately $500,000. This impact was primarily felt in North Carolina and
parts of New Jersey. In addition, rising fuel costs increased transportation
expenses by approximately $300,000.
The Company continues to see weakness in some sectors of United States
manufacturing. Because of this, management anticipates the sales trends of the
third quarter will continue throughout the fourth quarter.
During the three months ended September 30, 1999, 10 new sites were opened; all
sites opened as Fastenal(R) stores.
- 7 -
ITEM 2. (continued)
The following table indicates product lines added to the original Fastenal(R)
product line, the year of introduction, and the approximate percentage of total
net sales related to each product line during the three months ended September
30, 1999 and 1998:
PRODUCT LINE INTRODUCED 1999 1998
------------------------------------------- ------------------- -------------- ---------------
Tools 1993 12.5% 12.8%/1/
------------------------------------------- ------------------- -------------- ---------------
Cutting tools 1996 4.9% 4.9%
------------------------------------------- ------------------- -------------- ---------------
Hydraulics & pneumatics 1996 3.9% 3.4%
------------------------------------------- ------------------- -------------- ---------------
Material handling 1996 5.7% 5.1%/1/
------------------------------------------- ------------------- -------------- ---------------
Janitorial supplies 1996 1.7% 1.6%/1/
------------------------------------------- ------------------- -------------- ---------------
Electrical supplies 1997 1.1% */1/
------------------------------------------- ------------------- -------------- ---------------
Welding supplies 1997 * *
------------------------------------------- ------------------- -------------- ---------------
Safety supplies 1999 1.7 */1/
------------------------------------------- ------------------- -------------- ---------------
* Less than 1% of net sales
/1/ During the second quarter of 1999, a safety supplies product line was
added. This product line consists of product formerly included in the
Tools product line and, to a lesser extent, the Material handling,
Janitorial supplies, and Electrical supplies product lines. Restated
comparable numbers were not readily available.
Net earnings for the three months ended September 30, 1999 were $17,091,000, an
increase of 21.8% over net earnings of $14,033,000 for the comparable period in
1998. Operating income grew 19.0% from 1998 to 1999, a rate of growth less than
the net sales rate of growth. The slower rate of growth in operating income
occurred primarily because costs of sales increased at a 23.1% rate, a rate
greater than the net sales growth rate. The impact of the lower gross profit was
partially offset because operating expenses increased at a 20.1% rate, a rate
less then the net sales growth rate. Net earnings increased at a 21.8% rate, a
rate greater than the net sales growth rate, primarily because the elimination
of outstanding debt caused the Company to have net interest income in 1999
versus net interest expense in 1998. The Company site personnel totaled 3,471 on
September 30, 1999, an increase of 3.6% over the 3,352 on June 30, 1999.
See discussion above related to external impacts on operations during 1999.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the nine-month period resulted in the growth of
trade accounts receivable and inventories. Property and equipment increased
because of the expansion of two of the Company's distribution centers and its
manufacturing facility, the purchase of software and hardware for the Company's
information processing, the addition of certain pickup trucks and, to a lesser
extent, additions for manufacturing and warehouse equipment. Disposals of
property and equipment related to the planned disposition of certain pickup
trucks and semi-tractors and trailers in the normal course. Cash requirements
for these asset changes were satisfied from net earnings and the proceeds of
asset disposals. As of September 30, 1999, the Company had no material
outstanding commitments for capital expenditures.
- 8 -
ITEM 2. (continued)
Year 2000 Discussion
- --------------------
State of Readiness - The Company's information system can be broken down into
four distinct components: (1) point-of-sale (POS) system, (2) enterprise-wide
information system, (3) warehouse management system, and (4) other
systems/equipment. The state of readiness of each of these is as follows:
Beginning early in 1996, the Company began a rewrite of its point-of-sale system
(POS) which was, for the most part, completed in 1997. Testing began in 1997 and
continued into 1998. As of September 30, 1999 the Company had approximately 635
stores operating with the new POS software. By the end of 1999 the Company
expects to have all stores converted to the new POS software. In the event all
stores are not converted by the end of 1999, the Company has been modifying its
legacy POS system throughout 1998 and the first half of 1999. These
modifications were materially completed and tested as of June 30, 1999. The
Company plans to continue testing its POS systems for unknown issues.
Beginning early in 1997, the Company began to investigate new enterprise-wide
information systems to replace its legacy enterprise-wide information system. In
the second quarter of 1998 the Company finalized its selection of a Year 2000
ready enterprise-wide software package and hired an independent consulting firm
to assist in the design and implementation of the new software package. Although
the Company has significant depth within its own information system personnel,
the outside firm was hired to provide additional resources related to the design
and implementation of the new system and, more specifically, to assist in the
design, programming, and implementation of the key interfaces between the new
enterprise system, the POS system and the warehouse management systems. The
general ledger went on-line January 1999, the expense portion of accounts
payable went on-line May 1999, and demand planning went on-line July 1999. The
Company plans to implement additional pieces of the inventory management and
financial management functions in the last quarter of 1999 and the first half of
2000. The Company has been modifying its legacy inventory management and
financial management systems throughout 1998 and the first half of 1999 so that
any functions not implemented on the new system by the end of 1999 continue to
function in the Year 2000. These modifications were materially completed and
tested as of June 30, 1999. The Company's plan related to payroll processing,
which is currently performed on an in-house developed system, is to implement
this module of the new enterprise software in 2000. The Company has been
modifying its current payroll system throughout 1998 and the first half of 1999.
These modifications were materially completed as of June 30, 1999 and materially
tested as of September 30, 1999. The Company plans to continue testing these
systems for unknown issues.
Beginning early in 1998, the Company began to investigate new warehouse
management systems to replace its legacy warehouse management system. At the
same time, the Company began identifying Year 2000 issues within its current
warehouse management system. The warehouse management system has relatively
little date sensitive information as most of the data is limited to warehouse
locations, part numbers, quantities, and other warehouse related information.
The Company does not plan to replace the warehouse management system by the year
2000. The Company began rewriting portions of this software in 1998 to have it
Year 2000 ready. These modifications were materially completed and tested as of
June 30, 1999. The Company plans to continue testing these systems for unknown
issues.
- 9 -
ITEM 2. (continued)
Beginning early in 1998, the Company began to investigate the Year 2000
readiness of other systems/equipment. These consist primarily of technology in
the Company's buildings, the Company's distribution, manufacturing, and
transportation equipment, and in the Company's other infrastructure. The
Company's Year 2000 Project Team will continue to conduct this investigation,
which was materially complete as of June 30, 1999, throughout the rest of 1999.
The Company believes, due to the age and type of equipment involved, that
additional remediation efforts, if any, will be limited.
In 1998 the Company's Year 2000 Project Team also began an ongoing process of
evaluating suppliers regarding their plans to remediate Year 2000 issues. The
Company has grouped its suppliers by the product they supply, as well as if they
are a domestic or foreign supplier. The Company has chosen to mitigate its
supplier risk by having multiple vendors available, when possible, for the
various products supplied. No single supplier accounted for more than 5% of the
Company's purchases in 1998 or in the first three quarters of 1999.
In addition to suppliers, the Company also relies upon governmental agencies,
utility companies, telecommunication service companies, financial institutions
and other service providers outside of the Company's control. There can be no
assurance that such governmental agencies or other third parties will not suffer
a Year 2000 business disruption that could have a material adverse effect on the
Company's business, financial condition, or operating results.
Costs to Address the Year 2000 Issue - The total cost for hardware, software,
and implementation related to the POS system is estimated at $8.0 million. The
total cost for hardware, software, and implementation related to the
enterprise-wide information system is estimated at $9.0 million. The Company has
approximately $1.1 million yet to spend on its new POS system and approximately
$2.3 million yet to spend on the new enterprise-wide information system. The
Company does not separately track internal costs incurred for the Year 2000
issue. The internal costs primarily consist of payroll and related expenses.
The costs included above represent the total estimated costs related to the new
POS and enterprise-wide systems. The Company believes these costs are not, for
the most part, directly related to Year 2000 issues; but rather, are new systems
needed in the normal course due to the rapid growth the Company has experienced
over the last several years.
The Company does not have an estimate on Year 2000 remediation costs for its
warehouse management system or its other systems/equipment, but the Company
believes that such costs will not have a material adverse effect on the
Company's business, financial condition or operating results.
Management anticipates funding the costs to address the Year 2000 issue with
cash generated from operations, from borrowing capacity, and from available
cash, cash equivalents, and marketable securities.
- 10 -
ITEM 2. (continued)
Risks Presented By the Year 2000 Issue - There may be unanticipated delays in
completing the Company's planned Year 2000 remediation and, as the process of
inventorying the systems proceeds, the Company may identify additional systems
that present a Year 2000 risk. In addition, if any third parties who provide
goods or services essential to the Company's business activities fail to
appropriately address their Year 2000 issues, such failure could have a material
adverse effect on the Company's business, financial condition, or operating
results. For example, a Year 2000 related disruption on the part of the
financial institutions which process the Company's cash transactions could have
a material adverse effect on the Company's business, financial condition or
operating results.
Contingency Plans - The Company's Year 2000 Project Team's initiatives include
the development of contingency plans in the event the Company has not completed
all of its remediation plans in a timely manner. In addition, the Year 2000
Project Team is in a continuous process of developing contingency plans in the
event that any third parties who provide goods or services essential to the
Company's business fail to appropriately address their Year 2000 issues. The
Company contingency plans were materially completed on September 30, 1999;
however, modifications to these plans are expected throughout 1999. The Year
2000 Project Team consists of personnel from management, information
systems/technology and legal areas.
The Company's contingency planning focused on: (1) defining key communication
paths within the organization, (2) establishing levels of responsibility and
authority in the Company's distributed workforce if a Year 2000 issue makes
normal operations difficult, and (3) working throughout the entire Company to
establish manual procedures to accomplish critical business processes. The
contingency plan consists of a communication strategy and contact list, a
redefinition of roles and responsibility for "critical" situations, and the
creation of manual procedures at all levels of the Company to deal with the loss
of power, the loss of phone service, or the loss computer systems. The Company
also has plans to alter a number of the normal end of year activities in order
to be better prepared for any problems which may arise and to increase the
monitoring of inventory related to certain parts considered key items.
Certain Risks and Uncertainties
- -------------------------------
This discussion contains statements that are not historical in nature and that
are intended to be, and are hereby identified as, "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995, including statements
regarding anticipated sales trends, planned store openings, planned technology
conversions and remediation of Year 2000 issues. The following factors are among
those that could cause the Company's actual results to differ materially from
those predicted in such forward-looking statements: (i) an upturn or downturn in
the economy could impact sales at existing stores and the rate of new store
openings, (ii) a change, from that projected, in the number of smaller
communities able to support future store sites could impact the rate of new
store openings, (iii) the ability of the Company to develop product expertise at
the store level, to identify future product lines that complement existing
product lines, to transport and store certain hazardous products and to
otherwise integrate new product lines into the Company's existing stores and
distribution network could impact sales and margins, (iv) the ability of the
Company to successfully attract and retain qualified personnel to staff the
Company's smaller community stores could impact sales at existing stores and the
rate of new store openings,
- 11 -
ITEM 2. (continued)
(v) changes in governmental regulations related to product quality or product
source traceability could impact the cost to the Company of regulatory
compliance, (vi) inclement weather could impact the Company's distribution
network, (vii) foreign currency fluctuations or changes in trade relations could
impact the ability of the Company to procure products overseas at competitive
prices and the Company's foreign sales, (viii) disruptions caused by the
implementation of the Company's new management information systems
infrastructure could impact sales, (ix) unforeseen disruptions associated with
"Year 2000 Computer Problems" could impact sales and the Company's ability to
order and pay for product, and (x) changes in the rate of new store openings
could impact expenditures for computers and other capital equipment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from changes in interest rates
and foreign currency exchange rates. Changes in these factors cause fluctuations
in the Company's earnings and cash flows. The Company evaluates and manages
exposure to these market risks as follows:
Interest Rates - The Company has a $10 million line of credit of which $0 was
outstanding at September 30, 1999. The line bears interest at .9% over the LIBOR
rate.
Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the
Company's net investments and earnings denominated in foreign currencies. The
Company's primary exchange rate exposure is with the Canadian dollar against the
U.S. dollar. The Company's estimated net earnings exposure for foreign currency
exchange rates was not material at September 30, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Restated Articles of Incorporation of Fastenal Company, as amended
(incorporated by reference to Exhibit 3.1 to Fastenal Company's Form
10-Q for the quarter ended September 30, 1993)
3.2 Restated By-Laws of Fastenal Company (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-14923)
27 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FASTENAL COMPANY
/s/ Robert A. Kierlin
---------------------------------
(Robert A. Kierlin, President)
(Duly Authorized Officer)
Date October 27, 1999 /s/ Daniel L. Florness
---------------- ---------------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of Fastenal Company, as amended
(incorporated by reference to Exhibit 3.1 to Fastenal Company's Form 10-Q
for the quarter ended September 30, 1993).
3.2 Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit
3.2 to Registration Statement No. 33-14923).
27 Financial Data Schedule................................Electronically Filed